Term Life vs. Permanent Life Insurance
With life insurance, you can choose between term and permanent life insurance. Term life insurance is a cost-effective option to purchase temporary coverage as a financial protection for your dependents. Term life policies usually last for 20–30 years.
Permanent life insurance also includes death benefits, but unlike term insurance, it doesn’t expire. A permanent or whole life insurance policy also has an investment portion built into it. It’s an investment vehicle you can use for your retirement.
While an indexed universal life insurance can be a great addition to your employer-sponsored or individual retirement account, it’s not meant to be a replacement. The biggest risk is that the life insurance policy can be canceled if you stop paying premiums, which is not the case with a 401(k).
An indexed universal life insurance policy has two components: a death benefit and an additional cash value you can borrow against. The cash value component is tied to the stock market index and offers higher potential returns than other forms of life insurance.
It really depends on your specific situation. Term life insurance can be a great option for you if you need a low-cost solution to providing for your dependents. Its temporary duration, usually 20 to 30 years, only provides security for a short term. If you want to use your life insurance to build up cash savings, a term life policy is not the right choice.
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